§179D EPA ct T ax D ed ucti ons
Presented by: Ernst & Morris Consulting Group, Inc.
Topics
EPAct(Section 179D) Avail ilblable for Energy EffiEffiitcient BBildiuilding PjtProjects: Lighting HVAC Building Envelope
Additional Tax Incentives Solar, Geothermal, CHP & Builders Credit
1 Energy Policy Act of 2005 (EPAct)
Incentivized areas: Lighting HVAC Building envelope
Available for New Construction and Existing Buildings
Also available for: TtTenant owned lease-hldhold improvemen ts Rental Apartment Buildings 4 stories or above Primary Designers of Government Buildings
Overview
Our view of DOE analysis on tax area Difficult to reduce buildinggp envelope energy use after-the-fact Lighting current low hanging fruit Prospectively, HVAC may be biggest opportunity
Building Lighting Envelope 22% 28%
HVAC 50% Building Energy Use
2 Property Types First Movers Reasons
Retailers Energy is a major cost Centralized facilities’ management
Distribution Centers Major growth market High economic return
Hotels Meet ASHRAE 2004=Full EPAct Bi-level not required in guest rooms
Parking Garages Large facilities drive large EPAct benefits
Industrial Facilities Large facilities drive large EPAct benefits Existing lighting is being phased out by law
Office Buildings More states enact ASHRAE 2004 or higher building energy codes
Apartments Must be at least 4 stories
What’s it Worth?
Square Lighting Lighting HVAC Building Footage Minimum Maximum Maximum Envelope Total Deduction Deduction Deduction Maximum Deduction Maximum $.30/sq. ft. $.60/sq. ft. $.60/sq. ft. $.60/sq. ft. $1.80/sq. ft. 50,000 $15,000 $30,000 $30,000 $30,000 $90,000 100,000 $30,000 $60,000 $60,000 $60,000 $180,000 250,000 $75,000 $150,000 $150,000 $150,000 $450,000 500,000 $150,000 $300,000 $300,000 $300,000 $900,000 750,000 $225,000 $450,000 $450,000 $450,000 $1,350,000 1,000 ,000 $300,000 $600,000 $600,000 $600,000 $1,800 ,000
Note: For government buildings, these deductions go to the primary designer.
3 Chat Questions
How much did the Primary Designer pay for the new lighting system for a new public High School?
What was the Federal Income Tax Liability for our Primary Designer Client that only designs K-12 schools in: 2006? 2007? 2008? 2009? 2010-13?
Do you have any A & E clients that might be interested?
Commercial Building Immediate Deductions
Architects/Engineers/Lighting Designers DOE goaldl to incentivize green design in government building sector Benefits passed through to the primary designer of:
Federal offices, military bases, court houses, post office, labs etc.
State offices, transportation facilities, state universities, court houses etc.
County, city, town, village etc offices, schools, town halls, police, fire, libraries etc.
4 Commercial Building Immediate Deductions
Growth in this EPAct area for government buildinggg designers is ex pgploding Successful Design Niches: K-12 Public Schools State Universities and Colleges Military Bases Parkinggg Garages Airports
How Do You Qualify?
Mechanics Deductions based on improvements over ASHRAE 90.1 2001
Energy efficient improvements must be depreciable assets Converts 39 year depreciation to current deduction
Available for installations completed 1/1/2006 through 12/31/2013
Deduction amounts: Lesser of total cost or: $1.80/sq .ft . Whole Building $0.60/sq.ft. Individual Systems a. Lighting b. HVAC c. Building Envelope
ASHRAE (American Society of Heating, Refrigerating and Air-Conditioning Engineers) HVAC (Heating, Ventilation & Air Conditioning)
5 Cost Segregation Example- 100,000 sq. ft. warehouse
No Cost Seg. Traditional Cost Cost Seg. With Seg. EPAct 39 Year Property $7,000,000 $5,950,000 $5,890,000 15 Year Property $560,000 $560,000 7 Year Property $490,000 $490,000 1 Year EPAct - $60,000 Property After tax present $852,821 $1,013,764 $1,030,454 value (4 0% T ax, 8% Discou nt) Increase in PV $160,943 $177,633 % improvement 10% over cost seg alone
8 Ways to Capture Tax Deduction
Whole building ($1.80/ft²) 50% energy cost reduction below standard Permanent rules deduction ($.60/ft²)
Building Lighting HVAC Envelope
Alternative 1 162/3 %162/3 %162/3 % Alternative 2 10% 20% 20%
Interim lighting rules ($.30/ft²-$.60/ft²) 25% to 40% prescribed Light Power Density (LPD) reduction below standard
6 Chat Questions
What is the maximum potential tax deduction for:
100,000 sq.ft. lighting project for a new casino? 100,000 sq.ft. lighting project for a commercial office building? 100,000 sq.ft. lighting project for an IRS office building? Who gets the Tax Deduction? 100,000 sq.ft . lighting project for a Red Cross office building? 100,000 sq.ft. lighting project for a commercial warehouse?
Interim Lighting Rules
2001 25% 40% Meet W/ft² targets Standard Improvement Improvement Additional Requirements LPD, W/ft² Bilevel Switching Office 1.3 0.975 0.78 Meet ASHRAE 90.1 Manufacturing 2.2 1.65 1.32 requirements School/Library 1.5 1.125 0.90 Meet IESNA minimum Retail 1.9 1.425 1.14 light levels Warehouse 1.2 50% required, 0.60
% Improvement 25% 26% 27% 28% 29% 30% 31% 32% 33% 34% 35% 36% 37% 38% 39% 40%
Tax Deduction .30 .32 .34 .36 .38 .40 .42 .44 .46 .48 .50 .52 .54 .56 .58 .60 $/sq .ft.
7 Chat Questions
Does the room your sitting in have Bi-level Sithi?Switching? How? What is the Watts/Sq.ft. of your Room? If you are lit by 4 ft. fluorescent tubes assume 28 watts for each tube in your space. Some fixtures have two tubes, others 3 or 4. How many tubes(lamps) are in your fixtures? To measure sq.ft. count the ceiling tiles Do you have 2’ x 4’ ceiling tiles or 2’ x 2’ ceiling tiles?
Benefiting from ASHRAE 2004 & 2003 IECC
2001 25% 40% 2004 2004 2001 25% 40% 2004 2004 Std. Over Over Std. % over Std. Over Over Std. % over (W/ft2) 2001 2001 (W/ft2) 2001 (W/ft2) 2001 2001 (W/ft2) 2001
Automotive Facility 1.5 1.125 0.9 0.9 40% X Movie Theater 1.6 1.2 0.96 1.2 25% X
Convention Center 1.4 1.05 0.84 1.2 14% Museum 1.6 1.2 0.96 1.1 31% X
Court House 1.4 1.05 0.84 1.2 14% Office 1.3 0.975 0.78 1 23%
Bar Lounge/Leisure 1.5 1.125 0.9 1.3 13% Parking Garage 0.3 0.225 0.18 0.3 0%
Cafeteria/Fast Food 1.8 1.35 1.08 1.4 22% Theater 1.5 1.125 0.9 1.6 -7%
Family Dining 1.9 1.425 1.14 1.6 16% Police/Fire Station 1.3 0.975 0.78 1 23%
Exercise Center 1.4 1.05 0.84 1 29% X Post Office 1.6 1.2 0.96 1.1 31% X
Gymnasium 1.7 1.275 1.02 1.1 35% X Retail 1.9 1.425 1.14 1.5 21%
Health Care Clinic 1.6 1.2 0.96 1 38% X School/University 1.5 1.125 0.9 1.2 20%
Hospital 1.6 1.2 0.96 1.2 25% X Sports Arena 1.5 1.125 0.9 1.1 27% X
HtlHotel 171.7 12751.275 1021.02 1 41% X Town HllHall 141.4 1051.05 0840.84 111.1 21%
Library 1.5 1.125 0.9 1.3 13% Transportation 1.2 0.9 0.72 1 17%
Manufacturing 2.2 1.65 1.32 1.3 41% X Warehouse 1.2 0.8
Motel 2 1.5 1.2 1 50% X Workshop 1.7 1.275 1.02 1.4 18%
8 Energy Codes & Code Compliance
35 states are now at codes stricter than ASHRAE 2001 Title 20 appliance standards and equivalent are eliminating the use of probe start metal halides (CA, OR, WA) others pending T-12 lighting will be illegal to Manufacture (7/1/2010) We see many designs that miss EPAct and miss Building Codes Download COMcheck at:
http://www.energycodes.gov/comcheck/ez_download.stm
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2003 IECC
Arkansas New York
Colorado Montana Commercial Energy Codes Connecticut Nebraska West Virginia
2004/2006 IECC
Illinois New Hampshire
Rhode Island Pennsylvania
Maryland Kentucky
South Carolina Georgia
Wisconsin Kansas
Oklahoma New Mexico
Utah Idaho
Iowa
ASHRAE 04
Virginia Louisiana
Maine New Jersey
Ohio Nevada
State Specific
California Oregon
Florida Vermont
North Carolina Washington
Massachusetts
9 Chat Questions
Do you reside in one of the 35 states?
Do you have clients doing any new construction? What type of Building? Is it in a category where the building code automatically put them in the Watts/sq.ft. zone for tax deductions?
Advanced Lighting Systems Tax planning
Free Riding Two items required for EPAct eligibility 1. Meet a performance target 2. Have a Capital Lighting Project in an EPAct year
Potential Free Riding projects Lighting controls—Automation systems Lighting portion of Building Management Systems Daylighting design and systems
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10 Lighting Retrofit Economics (For Existing Buildings)
Energy Savings is usually the main driver
In some states, Utilities offer Rebates for energy efficient lighting Installations
Tax Savings is the newest opportunity
Demand Response is another potential income stream
Capitalizing on all the incentives can bring payback for projects to below 2 years and in some cases less than 1 year
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Understanding Lighting Technology
Today’s products use 40% to 60% less energy Our Governmen t and Utilities wan t re duce d energy use T-12 lighting will be illegal to Manufacture (7/1/2010) Metal Halide to Fluorescent is most Common Change out
Industrial/Manufacturing/Warehouse Office & Retail
Or
4 Lamp 4’ T12 3 Lamp 4’ Super T-8 2 Lamp 4’ Super T-8 T5 HiBay Fluorescent Metal Halide Mag. Ballast Elec. Ballast Elec. Ballast 234 Watts 458 Watts 144→164 Watts 72 Watts 67 Watts
11 Retrofit Math
100,000 sq.ft. Warehouse 250 Metal Halides replaced with HiBay Fluorescents
Cost of Project = $75,000 (Assumes $300/fixture installed) Annual Energy Savings = $24,461/yr 250 x (0.458 kW-0.234 kW) x 12 hrs/day x 7 day/wk x 52 wk/yr x $0.10/kWh Rebate = $24,600 This is a sample rebate, using LIPA’s rebates. Some areas have no rebate system others have larger rebates. Added PV of Tax Deduction = $13,461 40% combined tax rate, 8% discount rate, compared to 39 yr depreciation removed(expensed) in year 15
Payback = 1.5 Years IRR = 58%
Without rebate, Payback = 2.5 yrs, IRR = 37%
Chat Questions
Do you have clients doing Lighting retrofits?
If no, Do you have clients with lighting like this?
Should they be retrofitting?
12 New Construction Data Requirements
Project general information Sqqguare footage Lighting projects CAD drawings (.dwg or .dwf), Architectural & Electrical sets Fixture schedule
Retrofit Lighting Data Requirements
Project general information Square footage of each space Bi-level lighting confirmation Invoices (both material & labor) Fixture descriptions (model number, Lamp count, ballast type) Fixture count (new and retained) Foot candle of rooms
*most efficient for Energy Team to work with contractor
13 Energy “Modeling” required for HVAC & Envelope
HVAC and Building Envelope MdliModeling require d (IRS Approved) No partial deductions Almost exclusively new construction and Geothermal Thermal Storage
LEED (Leadership in Energy & Environmental Design) certified
Chat Questions
Do you have clients building LEED buildings? Putting in Geothlhermal? Putting in Thermal Storage?
14 Understanding Energy Models
IRS has approved ten types of modeling software
Trane Trace 700, Energy Plus, Carrier HAP, VisualDOE, EnergyGauge, DOE2.1E & 2.1E-JJH, Owens Corning Commercial Energy Calculator, Green Building Studio, EnerSim Other submissions are in process
Important modern Energy management tool
Currently required for all HVAC and building envelope dedu ctions and for w hole building lighting alternati ve
In many jurisdictions, rebates are provided for all or substantial portions of modeling costs.
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Best Opportunities
Architect & Engineering firms doing Government Projects Large spaces - tax deduction is based on square footage Cost segregation projects for new and/or retrofit construction (post 1/1/2006) LEED Buildings (gold & platinum) Owners of buildings > 50,000 sq. ft. investing in energy efficient lighting
15 CPA firms can Expand Service Offerings
Commercial Building Primary Designers of Owners Government Buildings • Retailers •Architects • Industrial Buildings • Engineers •Warehouses • Lighting Designers • Office Buildings • Design & Build Firms
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Additional Tax Incentives
Solar Extended Through 12/31/2016 30% Tax Credit Available for Photovoltaic and Solar Thermal Residential PV is No Longer Capped at $2,000
Geothermal Heat Pumps Available Through 12/31/2016 10% Commercial Tax Credit Residential is 30% capped at $2000
16 Additional Tax Incentives
Combined Heat & Power (CHP) Available Through 12/31/2016 10% Tax Credit
Energy Efficient Home Credit(Builder’s Credit) Available Through 12/31/2009 $2,000 credit per unit for the Contractor Efficiency must be 50% below IECC 2004
Georgia Credit – Similar to 179D
Chat Questions
What two states have the most Solar Installs? Why?
Do you have a client with a Georgia project?
17 E&M~Energy Tax Savers
Experience Over 3,,p000 studies completed Assisted with writing of the legislation Synergy between cost segregation and energy studies Authored numerous articles on Energy
Ernst & Morris Consulting Group, Inc. http://www.costsegandenergy.com
Ernst & Morris Consulting Group, Inc. 2190 Dallas Highway Marietta, Georgia 30064 1-800-COST SEG
Contact Email Alan Smith [email protected] Jacob Goldman [email protected]
18 SHOWCASE Venture Lighting International Uni-Form MP 575 pulse-start metal halide lamp and ballast system replaces 1,000- watt MH lamps. Product produces 60,000 LIGHTING initial lumens and twice the mean lumens of a standard 400-watt metal halide lamp. Arc tube shape improves thermal characteristics and light output. Tipless design eliminates cold spots for more uniform light output and longer lamp life. Tax Deductions CIRCLE #250 Advance Transformer Mark 10 Powerline electronic dimming ballast for use with 24-watt T5 high output Brighten Return on and 24-watt long twin tube fluorescent lamps has low-profile design. Ballast requires no additional control wiring and Lighting Upgrades is compatible with controls from many manufacturers. CIRCLE #260
Universal Lighting Technologies By Charles Goulding, Jacob Goldman Ballastar light-level switching ballast for and Siddharth Sheth T8 lamps provides light level control by switching from full light to 50 percent By all accounts, the Energy Policy Act deductions. One important factor has power using stan- of 2005 (EPAct) got off to a slow start. been tremendous improvements in light- dard wall switches Along with many other provisions, the ing product efficiency — many of today’s or relays. Ballast is designed to operate much-hyped law provides tax incen- lighting products meet the EPAct energy either one or two F32T8, F25T8, or F17T8 tives to encourage more energy-efficient target. Combine those factors with the lamps. Product can be connected to any buildings. But there were delays in pro- substantial economic benefits provided voltage from 120 to 277 volts. mulgating the Internal Revenue Service by EPAct, and there may well be a solid CIRCLE #262 regulations to implement the law. And economic case for installation of high ef- it’s taken a while for facility executives to ficiency lighting. Cooper Lighting understand the complex legislation. What’s more, the process of qualifying The Fail-Safe LED series of architectural Today, however, a growing number of for lighting deductions is easier than for vandal-resistant luminaires features seven facility executives are coming to see how HVAC or the building envelope. For those face plate choices in six base colors EPAct may offer significant financial ben- two areas, energy modeling is required. plus custom capabilities for signage and efits, especially for lighting systems. For lighting, two methods are available wayfinding. LED modules Effective Jan. 1, 2006, EPAct provided for obtaining tax deductions. The sim- use 11 Lumileds 3W white new tax deductions for specific invest- pler of the two is the prescriptive method, LEDs offering 50,000 ments that improve the energy efficiency which is based on watts per square foot standard life hours at 70 of either the entire building or one of three and does not require modeling. The sec- percent lumen maintenance. The one- building systems: lighting, HVAC or the ond method is modeling to show a 16.67 piece injection molded lens is designed building envelope. To qualify for those per cent energy cost reduction compared to obscure lamp image while maintaining deductions, a project — whether an entire to ASHRAE 90.1-2001. Modeling is the efficiency. UL 1598 listed for wet loca- building or one of the three subsystems only way to obtain the benefits of tions. CIRCLE #253 — must cut energy use compared to the limits specified in ASHRAE 90.1-2001. For links to supplier Orion Energy The amount of the deduction depends Web sites go to The Compact Modular T8 Series high-bay on how efficient the system is. The deduc- WWW.facilitiesnet.com/BOM lighting fixtures are available in 2-, 4-, 6-, tions are available for both new construc- and 8-lamp configurations. Quick-change tion and improvements to existing build- watt per square foot power allowance ballast pack and modular design enable ings. The project must be placed in service adjustments for lighting controls. upgrades or advanced controls to be between Jan. 1, 2006 and Dec. 31, 2008. added. Aluminum “I” frame dissipates Congress is currently weighing a measure The Opportunity heat more quickly than steel, lowering to expand the tax deduction amounts and EPAct tax deductions for lighting temperature surrounding the ballast. extend EPAct through the 2012 tax year start at 30 cents per square foot for a 25 CIRCLE #273 and through 2014 for projects certified percent reduction in light power den- as of 2012. sity compared to ASHRAE 90.1-2001 To date, lighting systems have been requirements. The deduction can be as by far the biggest beneficiaries of EPAct great as 60 cents per square foot for a 40
66 Building Operating Management/July ’07 SHOWCASE Alanod Aluminum Miro-Micro Matt for fluorescent high-bay applications has 93 percent total reflec- LIGHTING tivity and produces up to 20 percent more light than the same luminaire with a white painted reflector. Product is abrasion- resistant, inorganic to avoid yellowing or darkening, anti-static and dust resistant. CIRCLE #254 percent reduction. bi-level requirement because they do not To illustrate the economic benefit, a provide two levels of light. Leviton 100,000-square-foot building that quali- To get a deduction for a lighting EPAct Z-MAX lighting-control relay fies for the maximum incentive will gener- project, facility executives need to know systems include stand-alone ate a $60,000 Federal income tax deduc- the square footage of the spaces subject and network-ready models. tion and, in most states, a corresponding to the project, the watts per square foot Service life is 10,000,000 $60,000 state income tax deduction. for all rooms — including new and re- switching cycles. Astronomical clock allows To qualify for these deductions, a facili- tained wired lighting — and how the system’s location to be programmed to ty has to meet not only the specified EPAct bi-level switching requirement has been time-of-day settings or a time offset from light power density requirements for that met. Documentation for the lighting tax sunrise or sunset. Relays offer keypad type of space, but also comply with some deduction includes a watts-per-square- programming with bright LCD panels and additional mandates. Under the current foot spreadsheet for all wired lighting, a on-screen instructions. CIRCLE #255 legislation, in effect until 2008, these written energy plan, a certification and an additional requirements include bi-level inspection document. Lumisys switching and minimum IESNA light Maxiom Series controls high voltage levels. Bi-level switching means having at Maximizing Benefits lighting circuits via a two-wire RS-485 least two levels of light other than off in Many lighting projects just miss quali- network, occupancy sensors, light level all spaces. A space is defined as an area fying for EPAct tax incentives because sensors, momentary override switches, surrounded by floor-to-ceiling walls. A the lighting systems designer wasn’t and other input devices. LX5 technology dimmer, for example, meets the require- aware how close the design was to meet- features native BACnet and a range of ments because it provides multiple levels ing EPAct requirements. There are cases other protocols. Panels have on-board of light. Two or more switches controlling where design needs will trump EPAct DDN (Digital Device Network) commu- different fixtures in a space would also qualification but those occasions should nication to Digi-Touch addressable meet this bi-level requirement. Occupan- represent conscious decisions. In many switches. UL listed. Circle #256 cy sensors do not, on their own, meet this situations, merely changing one item in Full Spectrum Solutions The EverLast line of fixtures features electrodeless fluorescent technology that EFFICIENCY Justifying Energy Projects has a rated life of up to 100,000 hours and is resistant to EMC Facility executives have a range of economic drivers for lighting projects. Five economic interference. The company areas can be explored to increase the percentage of lighting and other energy efficiency has seventeen different projects that are approved. combinations of lamp • Energy Savings. Many of today’s lighting and HVAC products can reduce current energy wattages in three different styles and consumption in the range of 25 to 50 percent compared to older products, in some cases offers dimmable options on many models. products installed as little as five years ago. CIRCLE #257 • Rebates. Many states and local jurisdictions offer substantial rebates for energy improve- ments. Rebates are particularly lucrative in certain states in the Northeast and in California, Holophane where energy supply is limited and costs are high. Some rebates are called prescriptive, ROAM photocontrols communicate via meaning that a particular product category gets a prescribed rebate, such as $80 per lighting a wireless transceiver, creating a self- fixture or $1,000 per air conditioning unit. Some rebates are kilowatt based, meaning that the configuring, self-healing wireless network more a project reduces electricity use, the greater the rebate. Facility executives can now that exchanges data between photocon- access national electronic rebate databases and, for a fee, have all of the rebate paperwork trols on an event-driven basis. The system completed in virtually every jurisdiction where a company has facilities. monitors itself, reporting outages as they • EPAct deductions. For projects that meet EPAct requirements, significant tax deductions occur. Photocontrol is backward-compat- are available. ible with light fixtures that have a locking- • Demand-Response Programs. Many states offer demand-response and demand- type receptacle. CIRCLE #258 management programs where companies can get substantial economic payments for using lighting controls and HVAC controls to reduce electricity use when called upon during demand Lamina events or to earn additional revenues for making lighting and HVAC investments that perma- The SoL MR16 LED is designed as a nently reduce electrical demand. direct, ready-to-plug-in retrofit for 20- • Maintenance Cost Reduction. Building maintenance is a high-cost, labor-intensive watt MR-16 halogen and comparable process, particularly if there are a lot of products with short lives that require regular replacement. CFL lamps. This design produces as Some new energy-efficient products have longer lives, which reduces replacement costs. much light as the 20-watt halogen bulb, — Goulding, Goldman, Sheth but consumes less than 8 watts. Color temperatures of 3,050 K and 4,700 K. CIRCLE #267
68 Building Operating Management/July ’07 International NexLight Engineering Products The WRT4244 dimmer and Consulting Corp. controls fluorescent ballasts Lighting control uses solid state elec- that accept a 0-10 volt tronics with on-site, remote and aggre- DC control voltage. The unit is used in gate Web-based controls for HID lighting. conjunction with the WR6161-84 20 amp The VB400 contains an electronic ballast relay to provide on/off control. Dimmer and features microprocessors to regulate controls up to 50 ballasts. Dimming current flow for metal halide, high-pres- groups can be made that contain up to 60 a design — such as high wattage display sure sodium and pulse start lamps. dimmers. CIRCLE #271 cases — or changing out a few more fix- CIRCLE #259 tures than originally anticipated makes Square D the difference between no tax deduction Foster Transformers Occupancy sensors employing passive and a large tax deduction. LED power supply features short circuit infrared (PIR) and ultrasonic technologies On a national facility project for a and overload protection and can be are available for wall switches and ceiling- large retirement organization, for ex- dimmed with a standard mount applications. PIR wall switch ample, a slight design change increased dimmer. The power supply replacement sensors are both 120/277 the EPAct tax deductions from $2,000 is encapsulated in epoxy VAC and cover a 180-degree area with a per facility to $40,000 per facility. and housed in a 304 300-square foot range. Ceiling sensors The first step to obtaining EPAct de- stainless steel enclosure. Power supply offer 360-degree coverage and have a ductions is hiring a lighting designer who can withstand a direct short in excess of coverage area of up to 2,000 square feet. is familiar with EPAct requirements or is 15 days, with no external fusing required. CIRCLE #261 willing to learn them. If a facility execu- Product accepts multiple input voltages tive hires an architect or lighting designer with output configurable for 12 VDC or 24 GE who has no familiarity with EPAct, it VDC up to 60 W. CIRCLE #251 VIO white LED converts violet wavelength may well be worth allowing some ad- to white light, producing less than a 100 ditional time to learn the standards. It Juno Lighting Group degree Kelvin color shift over a 50,000- would also be important to ask the de- Elate specification-grade luminaires offer hour rated life. Product is offered in 3,500K signer to explain the rationale for designs open and lensed downlights, wall wash and 4,100K color temperatures. High- involving large building spaces that don’t and adjustables with CFL, induction, HID, power, 4-watt LEDs feature 70-percent qualify for EPAct tax deductions. incandescent and low-voltage sources. lumen maintenance and chip-on-board Good design incorporates many dif- The line also features pull-down and package that improves thermal manage- ferent — and sometimes conflicting — multiple lamp-aiming adjustables for ment. RoHS compliant. CIRCLE #252 considerations. However, it’s clear that display lighting. CIRCLE #268 energy-efficient design is now being given Robertson Worldwide more weight than in the past. There has Lithonia Electra series high temperature ballasts also been a quantum leap in the energy The I-BEAM fluorescent high bay lighting meet Energy Star 4.0 requirements efficiency of lighting products, which system features T5HO cool running tech- and have a 90 degree C makes it possible to achieve both good nology that is UL/C-UL listed to operate maximum case temperature. lighting quality and energy efficiency. in environments up to 65 degrees C. I- Ballasts available with side Facility executives should look for a de- BEAM delivers up to 50 percent in energy leads, bottom leads or bottom leads with signer who is familiar with today’s prod- savings over 400 watt metal halide lamps, studs for one 7- through 42-watt and two ucts and is not merely recycling outdated, according to the company, and maintains 13- through 26-watt CFLs. CIRCLE #275 inefficient design solutions. designed light levels over the life of the It is also important to keep accurate system. CIRCLE #269 Sensor Switch records of which properties have quali- nLight lighting offers system-level-control fied for EPAct tax deductions and for Osram Sylvania while enabling zones of nLight devices to how much per square foot. For example, The DURA-One A19 electrodeless compact self-commission and function indepen- a building that in 2007 qualifies for de- fluorescent lamp features a rated life of up dently. System provides local control via duction of 37 cents per square foot will to 15,000 hours. Offers instant brightness, LCD Gateways, as well as remote, global have the opportunity to achieve a second a starting temperature of –20 degrees control through SensorView Web-based deduction of 38 cents per square foot if a F and unlimited switching software. CIRCLE #276 proposal to increase the deduction from cycles. Compared to a 75- the current 60 cents to 75 cents becomes watt incandescent A19, the Lutron law. product provides energy cost EcoSystem allows workers to control savings of up to $82 over the life of the one or more fixtures from their desks Getting a “Free Ride” lamp, according to the company. using a personal computer. Quantum Organizations that installed energy- CIRCLE #274 software control package monitors efficient lighting before Jan. 1, 2006 — individual lighting fixtures and power that is, before the beginning of the EPAct usage, operating hours, monitor lamp and qualifying period — have the potential ballast performance. The system allows to get what is known as a “free ride” users to make changes to as many as 100 under the law. That’s true if the organi- EcoSystem networks at the same time. zation has already achieved the EPAct CIRCLE #270 light power density targets. The reason: Lighting projects undertaken after Jan.
70 Building Operating Management/July ’07 SHOWCASE LIGHTING
1, 2006, for buildings that have already — time clocks or occupancy sensors. Ten tion process. hit the light power density targets are au- stores qualified for the full 60 cents per Initially, the lighting industry described tomatically entitled to a tax deduction. square foot deduction. the basic EPAct concepts and then recom- Essentially this means that if a facility al- mended that facility executives seek tax ready meets the EPAct watts-per-square- Tax Tips advice. Increasingly, the lighting indus- foot target, virtually all lighting upgrades Beginning in late 2005, the U.S. try is engaging specialized tax consulting will qualify for tax deduction. lighting industry did a magnificent job firms that have the required skill set nec- Free riding is typically used to obtain of introducing EPAct on industry Web essary to identify, analyze and capture the automatic tax deductions for lighting sites and in trade brochures. But practi- EPAct benefits. controls projects, including occupancy cal problems made it difficult for facility Today, companies are beginning to ob- controls, dimming and daylighting sys- executives to take advantage of the de- tain substantial tax savings ranging from tems as well as the lighting portion of ductions. Applying EPAct requires inter- a few thousand dollars for small projects building management systems. disciplinary skills involving engineering, to tens of millions of dollars for large na- More and more facility executives are energy management and tax concepts tional property holders. beginning to understand free riding. At that aren’t normally part of the basic To date, the most common light- one department store chain, a lighting skill set of any single professional. The ing EPAct projects involve distribution controls project involving 20 facilities mainstream tax profession community is centers, industrial facilities and retail qualified for a “free ride” tax deduction. often not conversant with lighting electri- spaces. But EPAct deductions have also The chain had invested in energy efficient cal wattage, HVAC energy efficiency and been gained for lighting projects in office lighting before EPAct was passed and al- building envelope fenestration concepts. buildings, supermarket chains, restau- ready met the EPAct watts-per-square- Likewise, the facilities community gener- rants, assisted living facilities, hotels and foot requirement before the lighting ally isn’t familiar with tax deductions and other types of buildings. controls were installed. Most of the proj- normally doesn’t use income tax benefits There is a great deal of synergy be- ects involved automatic shutoff systems as part of the project capital authoriza- tween EPAct and the U.S. Green Building
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▲ free info: Circle 447 71 Watt Stopper Novitas Can’t anyone DW-200 wall switch occupancy sensors SuperSwitch 2 occupancy switches combine passive infrared and ultrasonic adjust sensitivity and time delay stop technologies. Sensors contain two automatically and immediately in relays for controlling two independent response to occupant behavior, this lighting loads or circuits. Products have eliminating the need to “learn” behavior high sensitivity and dense coverage and patterns over time. Switch fits into a kind include selectable walk-through, test and designer-style wallplate. With manual on presentation modes. CIRCLE #263 mode, lights are not switched on until touchplate is pressed. CIRCLE #265 of vandalism? Philips Lighting Luxeon Rebel power LEDs are engineered Acculite for operation between 350 mA and 1000 Exeter E3 Series luminaires feature an STI CAN! mA, and can exceed 70 lumens per watt extended range of decorative trims and at 350 mA. Product can deliver more lenses for commercial and retail environ- than 160 lumens at higher drive currents. ments. Based on the company’s glass, Product has a 3mm by 4.5mm footprint. acrylic and aluminum optical assemblies. Ceramic-based package is designed CIRCLE #266 to withstand high heat with a maximum junc- North American tion temperature of 150 Energy Group degrees C. Available in warm, neutral LED wall packs are designed for security, and cool-white with correlated color accent and perimeter lighting applica- With our coated, super tough temperatures (CCTs) of 3,000K, 4,100K tions. Packs are rated at 100,000 hours STI Wire Guards to protect and 6,500K respectively. CIRCLE #264 of operation, feature 80 percent energy against both accidental and savings over HID, and require virtually no intentional damage for Exit maintenance. Available in 150w or 250w Signs as well as: equivalent and in 120/277v. CIRCLE #272
Council’s Leadership in Energy and Envi- The modeling required to qualify ronmental Design (LEED) green building for a whole-building deduction under rating system. LEED requires computer EPAct is very similar to LEED modeling. Clocks & Bells Smoke Detectors modeling to document target levels of However, for separate systems modeling energy efficiency; EPAct also requires relating to lighting, HVAC and the build- computer modeling for HVAC, build- ing envelope, EPAct building modeling ing envelope, whole-building and some requires taking a different approach, lighting deductions. More importantly, one that most engineers are not familiar LEED generally requires adherence to with. Facility executives should be sure Emergency Lights ASHRAE 90.1-2004 energy-efficiency that their engineers understand, in-depth, requirements, meaning that LEED proj- the computer modeling requirements of ects will generally either qualify for EPAct EPAct. tax deduction or come very close. What’s more, 90.1-2004 is the basis for code in EPAct Lighting some states. Success Stories For example, office buildings qualify EPAct has made it possible for many Motion Commercial Lights Detectors for EPAct at the .975 watts per square warehouses, distribution centers and foot level and ASHRAE 90.1-2004 industrial property owners to realize And you can rely on STI sets a maximum of 1 watt per square substantial tax deductions. For example, foot for office buildings. So a building the Genlyte supply division facility in Makers of the planned to meet 90.1-2004 only needs Union, N.J., replaced older metal halide Stopper® II device, to reduce lighting energy use by .025 lighting with energy-efficient fluorescent world’s #1 false fire watts per square foot to qualify for an lighting. In the assembly/parts facility, alarm fighter for EPAct deduction. Accordingly, leading 240 metal halide fixtures with a rating of over 25 years. office building developers are increas- 455 watts per fixture were changed over ingly setting their office building lighting to four-lamp T5 fixtures with a rating of requirements at less than .975 watts per 236 watts per fixture. In the warehouse, WeProtect theThings square foot so that they both meet the re- approximately 40 metal halide fixtures quirements of ASHRAE 90.1-2004 and were replaced with more energy-efficient that Protect You qualify for EPAct. It seems likely that the six-lamp T5 fixtures as well. Safety Technology International, Inc. LEED-qualified professionals will begin With these changes, lighting energy to realize that EPAct provides meaning- use for the assembly/parts facility fell www.sti-usa.com ful economic incentives to support their from 1.33 to .84 watts per square foot. 800-888-4784 LEED initiatives. For the warehouse, lighting energy use ‘07 72 ▲ free info: Circle 448 SHOWCASE MAKE YOUR LIGHTING RETROFIT A SUCCESS LIGHTING
dropped from .56 to .48 watts per square foot. The result was a 35 percent reduction in lighting energy cost and an EPAct tax deduction exceeding $100,500. The building industry is increasingly recognizing the substan- tial value of EPAct-related lighting upgrades for both energy sav- ings and tax deductions. For the first time, national property owners have a national lighting standard energy target that provides national economic benefits. If the EPAct extension bill is enacted, as expected, virtually every US commercial and gov- ernment building will have the opportunity to benefit from this legislation.
Charles Goulding, an attorney and certified public accoun- tant, is president of Energy Tax Savers, Inc. Jacob Goldman is a tax consultant and Siddharth Sheth is an engineer with the firm. The firm has developed complimentary EPAct de- signer guides for major building categories including distri- bution centers, offices, pharmaceutical facilities, hotels and Don’t let your lighting retrofi t schools. run off the road! E-mail comments to [email protected].
A well planned and executed lighting effi ciency project can be one of the best ways to save your company money. But the results of a bad retrofi t project can be poor light levels, lost savings opportunities and a loss in worker productivity that can wipe out all your good intentions. Cooper Lighting, a leader in the design of energy effi cient lighting systems, can arm you with the information necessary to ensure your project’s success.
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EPAct Tax Deductions for Lighting Projects Grow More
Popular Part 1: EPAct Tax Deductions for Lighting Projects Gain CURRENT CONTENT Wider Use Part 2: Warehouses, Retailers Use EPAct to Earn Lighting Savings Part 3: How EPAct Works in LEED and Government Projects Part 4: Lighting Products
EPAct Tax Deductions for Lighting Projects Gain Wider Use By Charles Goulding, Jacob Goldman and Nicole DiMarino
In their third year, tax incentives available under EPAct — officially the Energy Policy Act of 2005 — are achieving wide use, particularly for energy-efficient lighting and lighting controls. LEED building projects are also increasingly taking advantage of EPAct tax incentives.
EPAct provides an immediate tax deduction of up to $1.80 per square foot for building investments that achieve specified energy cost reductions beyond ASHRAE 90.1-2001 building energy code standards. A one-time $1.80 per square foot deduction is the maximum tax deduction, but deductions of up to 60 cents per square foot are also available for three types of building systems: lighting, including lighting controls, HVAC, and the building envelope, which includes roof, walls, windows, doors and floor/foundation.
To obtain a tax deduction of 30 cents per square foot for lighting, the wattage must be reduced by 25 percent from ASHRAE 90.1-2001 levels. A maximum tax deduction of 60 cents per square foot requires a 40 percent reduction. To document the lighting electricity reduction and meet the EPAct requirements, the lighting project must have a spreadsheet to demonstrate that the project meets the EPAct watts-per-square-foot thresholds and meets seven other procedural requirements.
Under current law, EPAct tax incentives are available for projects placed in service after Dec. 31, 2005 and before Jan. 1, 2009. Multiple bills currently before Congress propose to extend EPAct for one or more years.
EPAct tax benefits for lighting have entered the mainstream because virtually all of the large lighting manufacturers and distributors are emphasizing the importance of the tax incentive with their sales proposals. The potential for an immediate EPAct tax deduction of 60 cents per square foot is a meaningful economic incentive for lighting projects, many of which range from 60 cents to $2.00 per square foot in installed costs.
7/11/2008 Page 1 of 2 EPAct Tax Deductions for Lighting Projects Gain Wider Use
The lighting market is enjoying sustained strength. Rising electricity costs, more rigorous state and local building energy codes, and improved lighting products are resulting in compelling economic paybacks, many times less than two years. As a result, it is easier for facility executives to win funding for energy-efficient lighting investments. Lighting specifiers are increasingly comfortable with the EPAct lighting requirements and know that they can meet them for most property categories. This confidence enables them to include EPAct tax benefits right in the initial lighting proposal. In fact, a lighting proposal without an EPAct tax benefit calculation is now unusual and hence somewhat suspect.
Charles Goulding, an attorney and certified public accountant, is president of Energy Tax Savers, Inc. Jacob Goldman is an engineer and tax consultant and Nicole DiMarino is an analyst with the firm. Energy Tax Savers Inc. is an interdisciplinary tax and engineering firm that specializes in the energy efficient aspects of buildings.
EPAct Tax Deductions for Lighting Projects Grow More Popular Part 1: EPAct Tax Deductions for Lighting Projects Gain Wider Use Part 2: Warehouses, Retailers Use EPAct to Earn Lighting Savings Part 3: How EPAct Works in LEED and Government Projects Part 4: Lighting Products
7/11/2008 Page 2 of 2 Warehouses, Retailers Use EPAct to Earn Lighting Savings
EPAct Tax Deductions for Lighting Projects Grow More
Popular Part 1: EPAct Tax Deductions for Lighting Projects Gain CURRENT CONTENT Wider Use Part 2: Warehouses, Retailers Use EPAct to Earn Lighting Savings Part 3: How EPAct Works in LEED and Government Projects Part 4: Lighting Products
Warehouses, Retailers Use EPAct to Earn Lighting Savings By Charles Goulding, Jacob Goldman and Nicole DiMarino
The largest category of commercial property owners capturing EPAct benefits is national and regional retailers, for both stores and distribution centers. Most retailers manage from the center core and often have common or similar store layouts. Once they decide on an energy-saving initiative, they implement it across a wide section of their portfolio. Large retailers have felt the impact of the economic downturn, and many are curtailing new store construction programs and closing marginal stores. This is enabling these leaner retailers to focus their energy-cost-cutting initiatives on the retained stores.
For retail store buildings, the ASHRAE 90.1-2001 watts-per-square-foot standard is 1.9. However, for the room category of retail selling space, the ASHRAE 90.1- 2001 standard is 2.1. This is an important advantage for retailers because it is easier to obtain higher tax deductions when using the latter standard. Many retailers are limiting existing store retrofits to the primary selling spaces.
Another category of EPAct projects is warehouses — single- and multiple-building projects with individual facilities ranging from 10,000 square feet to more than 1,000,000 square feet. Distribution centers particularly benefit from EPAct because the deductions are based on total square footage. The larger the space, the larger the incentive, and distribution centers are large facilities. The most common lighting retrofit is from metal halide lighting to fluorescent lighting fixtures where the energy savings alone are substantial. What’s more, while electricity costs are rising, the price of these lighting systems is decreasing, making the investment even more attractive.
Warehouses are the only listed building category where there is no partial tax deduction below 60 cents per square foot, and the owner must achieve a 50- percent-watts-per-square-foot reduction from ASHRAE 90.1-2001. Because this is an all or nothing category it is crucial to review the lighting design in advance. EPAct qualification will hinge on the fixture density of the design. Merely doing a one-for-one replacement of existing fixtures may not be sufficient.
7/11/2008 Page 1 of 2 Warehouses, Retailers Use EPAct to Earn Lighting Savings
In some cases, warehouse aisles are so narrow that the required lighting density makes it impossible to gain EPAct tax benefits. Warehouse owners are increasing their use of occupancy sensors so that with seasonal product lines and slow moving inventory the lighting is kept totally off when sections of the warehouse are not in use. This is a very cost-effective way to gain substantial energy savings.
Industrial and manufacturing facilities are a third category of buildings that are taking advantage of EPAct tax benefits. Again, these are large spaces where EPAct tax incentives based on square footage become particularly lucrative. When multiple manufacturing plants are involved, the plant manager often has unilateral decision making authority for investments with two-year or less economic paybacks. The EPAct tax incentive often drives payback below two years, making approval of lighting upgrades automatic. Again, replacing metal halide fixtures with fluorescent lighting is the most common project. The ASHRAE 90.1-2001 building standard for manufacturing facilities is 2.2 watts per square foot, and designing a 25 percent wattage reduction is fairly straightforward.
Enclosed parking garages are a growing EPAct category. In Notice 2008-40 issued March 7, 2008, the Internal Revenue Service made it clear that although parking garages are often unconditioned spaces they are eligible for EPAct tax deductions. There are numerous parking garages in urban environments, and electricity for lighting is the primary building energy cost.
It is quite common for multifacility property owners to learn how EPAct works with one building and then apply the same process with their remaining facilities. Island Architectural Woodworking has three manufacturing plants on Long Island, N.Y., including a new plant completed in 2007. After obtaining EPAct lighting tax deductions for its new building, Island is now applying EPAct to the lighting retrofit of its two existing facilities.
Charles Goulding, an attorney and certified public accountant, is president of Energy Tax Savers, Inc. Jacob Goldman is an engineer and tax consultant and Nicole DiMarino is an analyst with the firm. Energy Tax Savers Inc. is an interdisciplinary tax and engineering firm that specializes in the energy efficient aspects of buildings.
EPAct Tax Deductions for Lighting Projects Grow More Popular Part 1: EPAct Tax Deductions for Lighting Projects Gain Wider Use Part 2: Warehouses, Retailers Use EPAct to Earn Lighting Savings Part 3: How EPAct Works in LEED and Government Projects Part 4: Lighting Products
7/11/2008 Page 2 of 2 How EPAct Works in LEED and Government Projects
EPAct Tax Deductions for Lighting Projects Grow More
Popular Part 1: EPAct Tax Deductions for Lighting Projects Gain CURRENT CONTENT Wider Use Part 2: Warehouses, Retailers Use EPAct to Earn Lighting Savings Part 3: How EPAct Works in LEED and Government Projects Part 4: Lighting Products
How EPAct Works in LEED and Government Projects By Charles Goulding, Jacob Goldman and Nicole DiMarino
Products and Services: EPAct contains a tax provision intended specifically to help the government sector Green HVAC Solutions High Efficiency and IAQ, Lower Cost save energy. The law provides an incentive McQuay GreenWay(tm) System to designers to incorporate today’s energy Solutions efficient products into their designs for Siemens government buildings. In the beginning, Making buildings comfortable, safe, secure and less costly to operate the architecture and engineering
community had a hard time grasping this incentive because it is the first building-design tax incentive ever offered in the Internal Revenue Code. As designers have learned about the incentive in continuing education programs, they have become eager to use it. “Government” includes federal, state and local governments, including K-12 public schools. Although virtually all government-building categories have benefited from this incentive, the most frequent uses are for K-12 public schools, state universities and colleges, and parking garages. Other common categories include post offices, military bases, libraries, courthouses and hospitals.
LEED buildings are also increasingly taking advantage of EPAct tax benefits. LEED certification, the standard for best-of-breed sustainable buildings, requires compliance with ASHRAE 90.1-2004 building code standards, which are more rigorous than the 2001 version of the standard. This means that achieving LEED status should put the building well on the way to obtaining EPAct tax benefits.
The key with LEED projects is to use an IRS-approved modeling software for both the LEED and EPAct processes. The LEED model will use ASHRAE 2004 as a reference building and the EPAct model will use ASHRAE 2001 tax reference building criteria.
Some building owners have made the decision not to proceed with LEED certification based on incomplete economic payback information. It is important to have finance professionals familiar with utility rebates and EPAct tax deduction
7/11/2008 Page 1 of 2 How EPAct Works in LEED and Government Projects
opportunities on the LEED evaluation committee. To the extent that the LEED project incorporates a high percentage of energy-efficient measures, the combined energy savings, rebate payments and tax savings can materially influence payback. Many jurisdictions are providing extra rebates, some at the six-figure level, for buildings that achieve LEED status.
Charles Goulding, an attorney and certified public accountant, is president of Energy Tax Savers, Inc. Jacob Goldman is an engineer and tax consultant and Nicole DiMarino is an analyst with the firm. Energy Tax Savers Inc. is an interdisciplinary tax and engineering firm that specializes in the energy efficient aspects of buildings.
EPAct Tax Deductions for Lighting Projects Grow More Popular Part 1: EPAct Tax Deductions for Lighting Projects Gain Wider Use Part 2: Warehouses, Retailers Use EPAct to Earn Lighting Savings Part 3: How EPAct Works in LEED and Government Projects Part 4: Lighting Products
7/11/2008 Page 2 of 2 January 2008 LEED Building Tax Opportunities
By Charles Goulding, Jacob Goldman and Nicole DiMarino
Charles Goulding, Jacob Goldman, and Nicole DeMarino explain the accelerating pace of energy effi cient building certifi cation and the tax savings incentives associated with this important environmental effort.
EED building certifi cation is quickly becoming years it took to register the fi rst 1 billion in square the Marquee standard for best of breed build- footage.1 Achieving the coveted LEED certifi cation Lings. LEED buildings are typically entitled to level has impacted an ever expanding category of substantial tax benefi ts, and tax professionals should buildings. In addition to LEED industrial buildings, recognize LEED building proposals as tax planning LEED offi ce buildings, and LEED retail stores, we opportunities. LEED is administered by the U.S. now have LEED schools, LEED bank branches, and Green Buildings Council and stands for Leadership in our fi rst LEED car dealership, which is a Toyota Energy and Environmental Design. The LEED ratings dealership in McKinney, Texas. 2 system establishes 69 rating points and four catego- The tax opportunities with LEED buildings relate ries of accomplishment, with the highest being LEED to the large number of LEED ratings points involv- Platinum, followed by LEED Gold, LEED Silver and ing energy cost reduction. Out of the 69 total LEED certifi ed. LEED rating points, over 20 points relate to energy criteria, with 10 points specifi cally designated for Figure 1 energy optimization. The Energy Policy Act of 2005 Certifirttifi caccation Level Rating Points (EPAct) provides for up to a $1.80 per square foot LEEDLEED CertifiCertifii ed 26-32 immediate tax deduction for achieving specifi ed LLEEDEED SilverSilver 33-38 energy cost reductions above ASHRAE 2001 build- LLEEDEED GoldGoldd 39-51 ing energy code performance standards. The $1.80 LEEDEEDDP Platinumlat 52-69 per sqsquare foot tax deduction is the maximum tax On June 8, 2007,00 , YuYudelsonde sonn AsAAssociates,so iatess, ana orgoorga-a- deduction,deeduction, butb within the $1.80 deduction amount nization that monitors LEED data, announced that there are three building sub system tax deductions there are now 6,300 buildings in LEED registration up to 60 cents per square foot for lighting, HVAC and that to date 820 completed building projects (Heating, Ventilation and Air Conditioning) and the have become LEED certified. A November 13, Building Envelope (the building’s exterior shell). 2007, Wall Street Journal article noted that in a ASHRAE stands for the American Society of Heating recent seven month period 2.2 billion square feet Refrigeration and Air Conditioning engineers. LEED of commercial construction space was registered certifi cation requires compliance with the more for LEED, which is much less time than the seven rigorous ASHRAE 2004 building code standards. This means that achieving LEED status should put a building owner well on its way to simultaneously Charles Goulding, an attorney and certifi ed public accoun- obtaining EPAct tax benefi ts. EPAct tax deductions tant, is president of Energy Tax Savers, Inc. are currently available for projects completed be- Jacob Goldman is an engineer and tax consultant with En- tween January 1, 2006, and December 31, 2008. ergy Tax Savers, Inc. There are bills currently before Congress to extend Nicole DiMarino is an analyst with Energy Tax Savers, Inc. EPAct through December 31, 2013. © 2007 C. Goulding, J. Goldman and N. DiMarino CORPORATE BUSINESS TAXATION MONTHLY 17 LEED Building Tax Opportunities
Figure 2 Potential EPAct Tax Deductions Available for LEED Certifi ed Buildings Currently in Registration: Total Lighting HVAC Building Envelope Total Square Footage Minimum Deduction Maximum Deduction Maximum Deduction Maximum Deduction 2,200,000,000 $ 660,000,000 $1,320,000,000 $1,320,000,000 $1,320,000,000 $ 3,960,000,000
The 2.2 billion of commercial LEED projects have refl ect the equipment’s energy performance. To obtain the potential to obtain almost 4 billion in EPAct tax EPAct tax benefi ts only an IRS approved modeling deductions as presented in Figure 2. software can be used. To date IRS has approved eight modeling softwares in the following versions: LEED and EPAct Modeling Additional modeling softwares are currently seek- ing IRS approval. Requirements The EPAct model technique is somewhat different Further facilitating EPAct tax deductions for LEED than LEED modeling so the engineer/modeler should buildings is the mutual requirement that both LEED not commence a project where tax savings are de- building compliance and EPAct tax compliance be sired without speaking to a tax expert familiar with documented by building energy computer simula- the nuances of EPAct tax modeling. tion modeling (modeling). The modeling process requires that the energy LEED/EPAct performance characteris- A November 13, 2007, Wall Street tics of the Lighting, HVAC Strategy Journal article noted that in a mechanical systems, and Lighting Building Envelope be in- recent seven month period 2.2 Strategies putted into specialized billion square feet of commercial computer programs called When combining LEED models. Normally, highly construction space was registered for and EPAct tax planning skilled engineers perform LEED, which is much less time than strategies, a rigorous focus the modeling task. It is par- the seven years it took to register the on energy effi cient lighting ticularly important to use including energy effi cient a highly skilled engineer fi rst 1 billion in square footage. lighting fi xtures, lighting whewhenen momodeling building controls, and day lighting enenergynerrgygyy sosolutions,olu ns, ssincence tthehe enengineer will often need concepts is one of the best ways to maximize LEED toocro createcrreaate a documentedcu n math algorithem to properly rating points and EPAct tax deductions. The energy savings and tax deductions with day lighting systems are directlydi proportional to window to wall ratios and Figure 3 skysky lightight too rroofoo ratios. The more windows and sky- IRS Approved EPActAt Buildingildi EEnergy MModelingd SSoftwareft lights, the more daylight access and greater potential TRACE 700 Version 6.0.2.1 for energy savings and EPAct tax deductions. TRACE 700 Version 6.1.0.0 TRACE 700 Version 6.1.1.0 Building Envelope/HVAC Strategies EnergyPlus Version 1.3.0.018 EnergyPlus Version 1.4.0.025 To maximize building energy effi ciency and tax de- EnergyPlus Version 2.0.0.025 duction, the key is to start with a very energy effi cient Hourly Analysis Program Version 4.31 building envelope. An effi cient building envelope will Hourly Analysis Program Version 4.34 allow the building owner to right size the HVAC sys- VisualDOE Version 4.1 build 0002 tem, which for all practical purposes means downsize EnergyGauge Summit Version 3.1 build 2 to the correct building size. Without a highly effi cient EnergyGauge Summit Version 3.11 building envelope and modeling data, historically DOE-2.1E Version 119 the HVAC industry has often over sized the systems Owens Corning Commercial Version 1.1 to avoid complaints. Because HVAC is the biggest Energy Calculator (OC-CEC) building energy user, appropriately sizing the HVAC Green Building Studio Version 3.0 system can save tremendous energy costs. 18 January 2008
New Building Codes buildings, LIPA, the electric utility in Long Island, Requiring LEED New York, is offering major incentives up to: 1. $500,000 in LEED project grants Increasingly we are seeing two types of local area 2. $100,000 in LEED building commissioning costs LEED building code standards being enacted. Some 3. $50,000 in LEED/EPAct modeling costs jurisdictions are requiring that all government build- 4. $25,000 per LEED energy related rating point. ings meet prescribed LEED standards. For example: Most traditional utility rebates support the LEED Arizona: Requires all state funded buildings to energy optimization rating points, related to energy achieve LEED Silver certifi cation. reduction particularly for lighting and lighting controls California: Requires the design, construction, and and multiple energy effi cient HVAC projects. operation of all new and renovated state owned fa- cilities to be LEED Silver. LEED Tax Planning Michigan: All state funded new construction and major renovation projects over $1,000,000 must be Designing a facility to achieve LEED status takes a lot of LEED certifi ed. time and effort and requires participation by numerous New Mexico: All public buildings over 15,000 parties, including the designers and intended occupants of square feet must be LEED Silver. a facility. As soon as the tax professional learns that a LEED Note that with government buildings, the architect building is being contemplated, they should begin getting or engineer effectuating the energy effi cient design is involved in the LEED tax planning aspects of the project. entitled to the EPAct tax deduction benefi ts. 3 The energy effi ciency breakpoints for tax deductions at Other jurisdictions are going further and requiring the whole building and building subsystems should be that all new buildings meet specifi ed LEED levels. examined, along with the utility rebate breakpoints to help For example: the LEED designer understand all the economic benefi ts Babylon, New York: Requires LEED certifi cation available to support the LEED initiative. for any new construction of commercial buildings, offi ce buildings, industrial buildings, multiple resi- Conclusion dences, or senior citizen multiple residences over 4,000 square feet. The widespread acceptance of the LEED rating point Calabasas, California: All nonresidential, city and pri- system by America’s leading property owners, platforms vately owned buildings between 500 square feet and 5,000 substantial tax opportunities. The severity of the energy squarequaq are feefeetf must meet the LEED Certifi ed level. Buildings crisis is apparent to all Americans. Tax professionals overovver 5,0005,0,0000 squares are feetfeet mustmu t meemeet the LEED Silver level. who understand that LEED status embodies energy WWith thethe expansionpa on of thesehese building code require- cost reduction can play an important part in helping to ments,menm nts, virtuallyvirtua yeve everyry building building owner in the country address one of our nation’s biggest challenges. withh a national neww buildingbui ng programm isis closely ex- ENDNOTES amining how too potentiallyp tentially achieveach eve LEEDLEED status.sttatuss. 1 Dana Mattioli, How Going Green Draws Talent, Cuts Costs, THE WALL STREET J., (November 13, 2007):B10. LEED and Energy Related 2 Jessie Bove, Taking the LEED: Pat Lobb Toyota of McKinney, Texas, Becomes the First Auto Dealership to Win LEED Certifi cation, DIS- Grants and Rebates PLAY AND DESIGN IDEAS MAGAZINE (March 1, 2007) www.ddimagazine. Many jurisdictions are beginning to offer LEED spe- com/displayanddesignideas/search/article_display.jsp?vnu_content_ id=1003552525, accessed November 21, 2007. cifi c grants and rebates. For example, for new LEED 3 Code Sec. 179D (d)(4).
This article is reprinted with the publisher’s permission from the CORPORATE BUSINESS TAXA- TION MONTHLY, a monthly journal published by CCH, a Wolters Kluwer business. Copying or distribution without the publisher’s permission is prohibited. To subscribe to the CORPORATE BUSINESS TAXATION MONTHLY or other CCH Journals please call 800-449-8114 or visit www. CCHGroup.com. All views expressed in the articles and columns are those of the author and not necessarily those of CCH.
CORPORATE BUSINESS TAXATION MONTHLY 19